Assurant Inc. (>> Assurant, Inc.), the largest seller of "force-placed" home insurance in the U.S., agreed to pay a $14 million penalty and provide restitution to some New York homeowners under an agreement with state regulators to settle allegations of overpriced insurance and excessive profits.

Gov. Andrew Cuomo on Thursday said the pact addresses an "intricate web of relationships between insurers and banks that pushed distressed families over the foreclosure cliff."

The policies are "forced" on borrowers who drop their required, standard homeowners coverage, which protects banks' collateral. Struggling borrowers may seek to save money by canceling their original policies that are required when they take out a mortgage, unaware they will be hit by much-costlier forced coverage if they fail to restore coverage on their own.

The settlement follows hearings by the New York Department of Financial Services last year that grilled Assurant, other insurers and their banking partners about their relationships. The state maintained those relationships have been highly profitable for the companies at the expense of consumers.

In one example cited by the state in its Thursday announcement, Assurant allowed a bank-owned reinsurance company to reap profits from the insurance transactions. The New York regulators said J.P. Morgan Chase & Co. (>> JPMorgan Chase & Co.) "has made approximately $600 million since 2006" through such transactions with Assurant.

Under the terms of the agreement, Assurant agreed to lower the cost of many of the home-insurance policies it sells in the state and to eliminate "improper and unfair practices" that the state said helped Assurant inflate premiums. These include paying commissions to banks or mortgage servicers on the policies they provide and using reinsurance companies affiliated with the mortgage companies.

Assurant agreed to provide restitution to some homeowners who were harmed by its practices, including homeowners who were foreclosed on because of the cost of the coverage, the state said.

In a news release, Assurant noted it neither admitted nor denied any wrongdoing in the settlement, and said it was modifying "certain lender-placed business practices consistent with new regulations expected to be issued by the NYDFS that will apply to all New York-licensed lender-placed insurers of properties in the state."

The state launched its investigation into the force-placed insurance industry in the fall of 2011. The investigation revealed that the premiums charged to homeowners for the coverage can be two to 10 times higher than premiums for voluntary insurance, "despite the fact that force-placed insurance provides far less protection for homeowners than voluntary insurance," state officials said in a news release Thursday.

"Insurers and banks built a network of troubling relationships and payoffs that helped drive premiums sky high," said Benjamin Lawsky, superintendent of the state's Department of Financial Services. "Those improper practices created significant conflicts of interest and saddled homeowners, taxpayers, and investors with millions of dollars in unfair and unnecessary costs."

The insurers and banks have argued that the premiums are appropriate given the costs and risk they incur. They maintain the prices reflect that they often insure vacant properties and do so without inspections.

Gene Mergelmeyer, president and chief executive officer of Assurant's specialty-property business, said in the statement: "With matters resolved with the New York Department of Financial Services, we look forward to filing (for regulatory approval) our next generation lender-placed product as we continue to meet the needs of our clients and customers in New York with outstanding service and support."

Assurant shares were off 2% to $43.67 in recent trading. The shares have jumped nearly 26% so far this year after a federal regulator rejected an attempt by mortgage-finance giant Fannie Mae to lower costs for the insurance by injecting competition into the market.

Assurant and Australia's QBE Insurance Group Ltd. dominate the force-placed market in the U.S. Last year, Fannie lined up a consortium of insurers led by Zurich Insurance Group AG that would have offered lower-cost coverage. But the Federal Housing Finance Agency rebuffed that effort last month.

In its release, New York said it expected other force-placed insurers to "step up to the plate now" and put in place the changes agreed to by Assurant.